Key points of investment
Incident: The company disclosed its 2023 annual report, and realized net profit to mother of 27.257 billion yuan, a year-on-year decrease of 27.1% in comparable terms, corresponding ROE of 11.4%; operating profit to mother was 35.518 billion yuan, down 0.4% year on year. The company's annual dividend in 2023 was 1.02 yuan, the same as the previous year, corresponding to a cash dividend rate of 36.0% (2022:39.9%). The performance was in line with expectations, and attention was paid to the room for dividend rate recovery and improvement.
EV economic hypothesis adjustment analysis. The company lowered the long-term return on investment assumption to 4.5% (previously 5.0%) and the risk discount rate to 9.0% (previously 11.0%). Based on the old economic assumptions, the new business value (NBV) in 2023 can be increased by 30.8% on a comparable scale. Based on the new economic assumptions, the 2023 NBV decreased by 8.9% compared to the old 2022 assumption (mainly due to a slight increase in the share of spread-sensitive businesses such as incremental whole life insurance in the company's business structure in recent years). Changes in evaluation methods, assumptions, and models dragged down EV at the beginning of the life insurance period by 5.5%, but the value credibility increased after the adjustment.
Operating profit (OPAT) adjustment analysis. The company retrospectively adjusted OPAT in 2022 by -11.1% to 35.661 billion yuan. The comparable caliber in 2023 decreased slightly by 0.4%, of which life insurance achieved operating profit of 27.257 billion yuan, an increase of 0.4% year on year; the marginal balance of contract services at the end of the period was 323.974 billion yuan, down 0.8% from the end of the previous year (Ping An: -6.1%, Xinhua: -3.6%), thanks to the company's stronger momentum to resume new business.
Operation Changhang continues to advance, and the NBV growth rate has been growing for 6 consecutive quarters. In order to be more comparable, we analyzed the 30.8% year-on-year increase in NBV of Taibao Life Insurance in 2023 under the old economic assumptions, corresponding to the year-on-year growth rate of 16.7%, 54.7%, 51.9%, and 3.3% year-on-year from 1Q23 to 4Q23. The NBV growth rate has now accumulated 6 quarterly improvements over a cumulative period of 6 quarters; in terms of attribution, the new large-scale insurance in 2023 increased 4.1% year on year, and NBV Margin increased 3.0 pct. Based on the new economic assumptions, individual insurance/banking insurance channels contributed 83.0% and 17.0% to the 2023 NBV, respectively. The quality of the team increased production capacity and revenue. In 2023, the average monthly insurance marketer decreased by 24.7% year on year, but the per capita first-year premium was 12,837 yuan, an increase of 51.8% over the previous year. On the basis of the results of the first phase of the “Changhang” transformation, the second phase of the “Changhang” transformation is planned. Under the new standards, Taibao Life Insurance's service performance and others fell 0.3% year on year. Investment performance declined by 185.9% year on year from profit to loss, dragging down net profit by 33.7% year on year.
Non-vehicle profits led the older three companies, and investment dragged down Taibao Insurance's net profit by 19.7% year-on-year. In 2023, Taibao Insurance achieved net profit of 6.575 billion yuan under the new standards, down 19.7% year on year. As a result, underwritten profit fell 15.6% year on year to 4.14 billion yuan, and total investment income fell 25.4% year on year to 4.78 billion yuan. In 2023, Taibao Industrial Insurance's comprehensive underwriting cost ratio was 97.7% (human insurance: 97.6%, safety: 100.7%), an increase of 0.8 pct over the previous year. In terms of component attribution: The comprehensive underwriting fee ratio was 28.6%, a year-on-year decrease of 0.3 pct. ; The comprehensive underwriting payout rate was 69.1%, up 1.1 pct from the previous year. ; In terms of insurance attribution, car insurance COR increased 1.1 pct. year-on-year to 97.6% (human insurance: 96.9%, safety: 97.7%), non-car insurance COR remained flat at 97.7% (human insurance: 98.6%, safety: 106.6%). The underwriting profit margin was superior to that of the old three companies. Thanks to the continuous consolidation of the underwriting profit base, business quality remained stable.
Profit and loss from changes in fair value drag down the total return on investment. At the end of 2023, the Group's equity financial assets accounted for 14.5%, down 0.3 pct from the beginning of the year. Among them, core equity accounted for 10.7%, down 0.8 pct from the beginning of the year. The net, total, and comprehensive return on the Group's investment assets in 2023 was 4.0%/2.6%/2.7%, -0.3 pcs/-1.5 pcts.
Profit forecast and investment rating: NBV improved year-on-year for 6 consecutive quarters, focusing on the room for dividend rate recovery and improvement. Due to declining investment income, we expect net profit to be 303, 376, and 42.9 billion yuan (the original 2024-25 forecast was 340 billion yuan and 38 billion yuan, and the 2026 forecast was added). Under the new economic assumption, the closing price on March 28, 2024 corresponds to 0.39 times the dynamic PEV for 2024, which maintains a “buy” rating.
Risk warning: Changhang's transformation fell short of expectations, and the continued effectiveness of the strategy fell short of expectations